Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 238

What the court decided

Parkline Constructions Pty Ltd was the builder of the Ettalong Hotel for a partnership of the appellants, Bitannia Pty Ltd and Rossfield Nominees Pty Ltd [22], [42]. The architect, S & S Quirk Pty Ltd, had power to act as the proprietor's agent in administering the contract [42]. Parkline served a claim for release of half the retention moneys on 15 December 2004 [44]. The architect's payment schedule rejected it the same day, because documentation had not been received or approved [45]. Parkline purported to resubmit that claim on 25 December 2004 [46]. A payment schedule of 6 January 2005 rejected it again, because warranties and work-as-executed drawings had not been supplied [47].

On 15 February 2005 Parkline sent a further claim, headed as a final claim and including the retention release, by facsimile to the general manager of a company that administered the contract for the appellants [48]. The claim indicated that it had been copied to the architect, but Parkline did not send it to the architect, and no payment schedule was provided in the time the Act allowed [48]. Parkline sued in the District Court and obtained judgment for the amount of the claim [22], [51].

The appellants sought to rely on rights to relief said to arise under the Trade Practices Act 1974 (Cth) [24]. Their proposed cross-claim alleged that misleading conduct by Parkline, in contravention of section 52 of that Act, had induced their failure to serve a payment schedule [54]. They applied for leave to reopen their case and to rely on the cross-claim and an amended defence [54]. Parkline did not concede the allegation, but did not dispute that the appellants' case on it was arguable [25].

The primary judge held that a payment claim need not be made in good faith, that section 15(4) prevented the cross-claim and that there was no inconsistency with the Trade Practices Act [55]. She refused leave because the cross-claim was hopeless and, as a factor "of very little weight", because the application was late [55]. Whether section 15(4) also barred the proposed new defence was left undecided [56].

The Court of Appeal allowed the appeal [128]. Hodgson JA agreed with Basten JA that the appeal should succeed and, subject to his own reasons, substantially agreed with Basten JA's reasoning [1]. Tobias JA agreed with both on the defence point and with the orders Basten JA proposed [17], [20].

On good faith, Hodgson JA and Basten JA held that a valid payment claim did not require proof that the claimant genuinely believed it was entitled to the amount claimed [2], [75]. Basten JA reasoned that a respondent wishing to resist a claim was required to provide a payment schedule, and that the merits of a claim were for the adjudicator [58], [71]. He noted that the Act did not require a claimant to verify by affidavit that its claim had reasonable prospects of success [72]. Hodgson JA added that, consistently with the Act's objects, a respondent should raise every challenge to the claims in a payment claim through its payment schedule [3]. Both judges recognised that the Act could produce injustice where no payment schedule was served through no fault of the respondent, and referred to the possibility of a stay [4], [5], [61], [62].

In the claimant's debt proceedings, the respondent was not entitled under section 15(4)(b)(ii) to raise "any defence in relation to matters arising under the construction contract" [29]. All three judges held that it did not prevent a defence relying on the alleged misleading conduct [12], [17], [96], [124].

In Basten JA's view, the defence concerned the claimant's conduct in serving the payment claim, not a matter arising under the contract, and the words "in relation to" should not be read so broadly as to bar it [96]. He observed that, in equity, a set-off could be pleaded where a matter impeached the legal basis of the claim [88]. He did not accept that Bank of New Zealand v Spedley Securities Ltd (In Liq) confined such a complaint to a cross-claim [97], [101], [102]. He found the reasoning of the majority in Westpac Banking Corp v Eltran Pty Ltd unpersuasive in this statutory context [95].

Hodgson JA added his own analysis of the remedies. In his opinion, and subject to discretionary questions, the appellants could seek relief under section 80(1) or section 87(1A) of the Trade Practices Act, such as an injunction or an order dismissing the proceedings, by way of defence [7], [8]. That relief would deny the claimant's entitlement to judgment altogether rather than be set against it, so it was not suited to a cross-claim [9]. He considered that the District Court could give effect to such a defence [10]. He thought a set-off of damages could also be claimed in a defence, but that this would be less satisfactory here [11].

Basten JA alone went further. The appellants' inconsistency argument relied on section 109 of the Constitution [105]. Assuming the complaint could not be raised by defence, he concluded that the State law was inconsistent with the Trade Practices Act and inoperative to the extent of the inconsistency [119]. On that alternative, section 15(4)(b)(i) was invalid so far as it prevented a cross-claim relying on a complaint of misleading conduct in breach of section 52 [125]. He reasoned that the State law's impact on the Commonwealth rights was direct and significant, and that a stay to allow separate proceedings was unlikely to be granted [115], [118].

Tobias JA found it unnecessary to consider that alternative argument [19]. Hodgson JA agreed that significant procedural obstacles to relief under the Trade Practices Act would make section 15(4)(b) inconsistent with it, but on his analysis found none relevant to this case [13].

Hodgson JA held that the primary judge erred in holding in effect that the appellants' reliance on the Trade Practices Act was hopeless [13]. He considered that, as the appellants had an arguable case that Parkline's alleged misleading conduct led them to believe the claim had gone to the architect, their own failure to check should not preclude the defence [15]. Basten JA said that lateness would have been a discretionary consideration had the primary judge found merit in the proposed case (which she did not) and that she had in any event described it as a factor "of very little weight" [126]. The Court set aside the District Court's orders of 3 March 2006, gave the appellants leave to file a defence within 14 days and to reopen their case and remitted the matter [128]. Basten JA said that, even if the defence were proved on the facts, whether it should defeat a judgment would turn on whether that relief was appropriate in the circumstances [127].

Why it matters

The decision concerned the New South Wales Act and the Trade Practices Act as they then stood. On that legislation, the holdings treated differently a respondent's challenge to the claim itself, which two judges said belonged in a payment schedule, and a complaint that the claimant's own conduct in serving the claim had misled the respondent into not providing one. The second kind of complaint could be raised as a defence in the debt proceedings, although the Court made no finding on whether Parkline had misled the appellants; that was left to the District Court on remittal [127].

The section 109 conclusion was Basten JA's alone and was put in the alternative, so the case did not decide, for the Court, that section 15(4)(b)(i) was invalid. Hodgson JA stressed that the alleged misleading conduct here was relevant to the claimant's entitlement to judgment under section 15; where such conduct was relevant only to the parties' final entitlements, he considered that section 15(4)(b) would place no obstacle to relief under the Trade Practices Act [14]. Readers should check the current legislation before relying on the decision.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.